Fannie Mae, Freddie Mac Payments Help US Post Record December Surplus

Fannie Mae, Freddie Mac Payments Help US Post Record December Surplus
By User:AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia Commons

The federal government posted a record December budget surplus thanks to payments by Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) – Fannie Mae and Federal Home Loan Mortgage Corp (OTCBB:FMCC) – Freddie Mac.

The budget surplus was also aided by the declining unemployment rate.

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Largest surplus for December

Revenue exceeded spending by $53.2 billion last month against a $1.19 billion deficit recorded in December 2012. According to the Treasury Department, revenue increased to $283.2 billion last month from $269.5 billion in December 2012. With strict control over expenditure, spending totaled $230 billion as against $270.7 billion record a year earlier.

Last year also witnessed the steepest calendar-year decline in the nation’s jobless rate with a 1.2 percentage-points drop to 6.7%.

Fannie Mae, Freddie Mac’s contribution

According to the Treasury Department report, Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) – Fannie Mae and Federal Home Loan Mortgage Corp (OTCBB:FMCC) – Freddie Mac. made payments to the Treasury totaling $34 billion more last month than they were a year earlier.

The mortgage giants have taken $187.5 billion in U.S. aid since they were taken into conservatorship in 2008. The GSEs have returned $185.2 billion, which is counted as a return on the nearly 80% stakes the government holds, not as payment.

The Federal Housing Finance Agency is the regulator and conservator of Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) – Fannie Mae and Federal Home Loan Mortgage Corp (OTCBB:FMCC) – Freddie Mac, as well as regulator of 12 Federal Home Loan Banks. In its 2013 Performance and Accountability Report released last month, FHFA disclosed that the Enterprises achieved positive earnings growth results during the period October 2012 through September 2013.

Return of substantial assistance

According to the FHFA report, earnings apart, the Enterprises were able to return a substantial portion of the assistance received from taxpayers via the Senior Preferred Stock Purchase agreements with the Treasury.

Under the terms of the bailout for Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) – Fannie Mae and Federal Home Loan Mortgage Corp (OTCBB:FMCC) – Freddie Mac., the government gets a majority of the companies’ quarterly profits. The two companies made payments to the Treasury totaling $39.57 billion at the end of last year.

Just five years ago, both financial institutions were on the verge of bankruptcy and required a combined $187.5 billion dollar government bailout to keep them afloat. That has completely changed today, as both Fannie Mae and Freddie Mac are financially healthy and have become a source of substantial income for the government.

According to Guy Cecala, publisher of Inside Mortgage Finance Publications, the GSEs have become profit-producing cash cows for the government with the two entities going to produce somewhere in the neighborhood of $40 billion to $50 billion a year for the government.

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Mani is a Senior Financial Consultant. He has worked in Senior Management role in large banking, financial and information technology organizations. He has provided solutions for major banking and securities firms across the globe in the area of retail, corporate and investment banking. He holds MBA (Finance) and Professional Management Accounting Qualifications. His hobbies are tracking global financial developments and watching sports
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